Personal auto insurers raked in profits of at least $29 billion in 2020 as miles driven, auto crashes and insurance claims plummeted due to the pandemic, according to a new study by the Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ).
The study claimed that insurers collected $42 billion in excess premiums last year while providing only $13 billion in pandemic-related premium relief.
“Instead of returning the COVID windfall to consumers, insurers increased payouts to senior management and stockholders,” CFA said.
According to CFA and CEJ, the “vast majority of insurance regulators” took no action to compel insurers to return what the advocacy groups said were illegal profits. CFA and CEJ said that according to a study of insurers’ financial statement data and an additional analysis by AM Best regarding insurers’ premium relief, insurance companies should have returned $42 billion in premium overcharges to customers, but only returned a third of that amount.
“In virtually every state, auto insurance premiums – by law – cannot be excessive,” said J. Robert Hunter, CFA director of insurance. “The inability or unwillingness of almost all state insurance regulators to enforce the law and protect consumers raises serious questions. As we pointed out in letter after letter to insurance regulators throughout 2020, it was crystal clear that insurers’ premium relief was woefully inadequate.”
According to financial reports reviewed by CFA and CEJ, between 2016 and 2019, auto insurers paid 67.4 cents of every premium dollar for claims. The remaining 32.6 cents, along with investment income, covered insurer expenses and profit. In 2020, the amount spent on claims fell to 56.1 cents per dollar of total premium reported. That’s $33.6 billion less than if insurers had continued to pay 67.4 cents in claims per dollar in premium.
“To provide some perspective, a reduction in claim payments of $33.6 billion is a per-vehicle reduction in claims of about $150,” CFA said. “...Yet, according to AM Best, insurers returned just $13 billion in premium relief – less than one-third of their pandemic windfall – while pocketing the remaining two-thirds. As a result, insurers shortchanged policyholders by an average of over $125 per insured vehicle.”
CFA and CEJ said that as a result of the sudden change in exposure due to the pandemic, auto insurance premiums became excessive “virtually overnight” in March of last year.
“However, most regulators did not take – and still have not taken – action to require the necessary premium relief from auto insurers,” CFA said.
In April and May of last year, most of the nation’s largest auto insurers did provide refunds or credits to customers. However, “very little of the excess premium was given back after last spring and our research showed that even this two-month payback to policyholders was only about half of what should have been refunded,” CFA said.
According to the study, California, Michigan, New Jersey and New Mexico were the only states to require premium refunds during spring of last year. However, only California continued to require refunds beyond the first few months of the pandemic. In March 2021, California Insurance Commissioner Recardo Lara found that auto insurers were overcharging California drivers during the pandemic and ordered them to return additional premiums to customers.
In June and July, respectively, Washington state and New Mexico announced industry data calls about auto insurance losses that CFA and CEJ said would “hopefully lead to additional premium refunds for consumers.” However, no other regulators have taken steps to recover money for drivers, CFA said.
The advocacy groups also slammed the National Association of Insurance Commissioners, saying NAIC had taken no steps to examine auto insurers’ pandemic windfall or collect data during 2020 to monitor the situation.